A&M study says raising minimum wage would not stimulate economy

Updated 8:58 am, Wednesday, March 20, 2013

Texas A&M University researchers say raising the minimum wage will reduce job creation, but will not affect employee turnover or layoffs.

In President Barack Obama's State of the Union address, he proposed raising the minimum wage from $7.25 an hour to $9, along with an annual boost for inflation, sparking a national debate.

The recent Texas A&M study, "Effects of the Minimum Wage on Employment Dynamics," analyzed the factors related to the minimum wage and changes in employment and found that job creation was reduced substantially, but jobs lost did not increase.

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The study by Jonathan Meer, an assistant professor of economics at Texas A&M, and Jeremy West, an economics graduate student, shows that net job growth falls in response to an increase in the minimum wage, but employee turnover is unaffected.

"This makes intuitive sense: firing people is unpleasant and costly, so adjustment takes some time as employers reduce their hiring of new or replacement workers," Meer said in a statement.

He says there are numerous reasons not to increase the minimum wage or to even have one at all. He said when something costs more, people purchase less of it.

Meer concluded in the study that raising the minimum wage has a negative effect on hiring and the number of people it would help would not help stimulate the economy.

"While some people may get slightly higher pay and be somewhat better off, being unemployed is really, really bad, and there's no reason why we should be focusing on the people who currently have these jobs (and will keep them) rather than those who are trying to get these jobs but can't," Meer said.

Economists have been arguing over the years about whether the minimum wage can lead to broader economic benefits or whether it would unfairly burden employers.

In 1994, a study found that a rise in New Jersey's minimum wage did not reduce employment levels in the fast food industry. Other economists have argued that comparing different states over time shows that raising the minimum wage hurts job growth.

More than 15 million workers earn the national minimum wage, making about $15,080 a year.

In numerical terms, Texas has more workers toiling for minimum wage or less than in any other state, according to a U.S. Bureau of Labor Statistics report. Last year, 452,000 Texans earned the minimum wage or less. That includes young workers paid the subminimum training wage.

Ten states already make similar cost-of-living adjustments to the minimum wage. In Washington state, workers earn at least $9.19 an hour, which is the highest minimum in the country. A total of 19 states and the District of Columbia have minimum wages above the federal rate of $7.25.